The Debt Panel: 'I signed up for three credit cards because my income did not match my expenses'

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I have three credit cards from three different banks, which I was managing to repay until last October. That was when my employer told me they were making me redundant because the company was in financial crisis. However, they later retracted that and said I could stay on until April 2019, when my visa ends, but they would no longer provide free accommodation for my family and me. I earn Dh5,000 a month working in advertising; my employer used to supply my housing, but they have now asked me to pay a rental amount of Dh3,500. That means over half my salary goes towards rent for myself, my husband and daughter. This is why I need to renegotiate my debts with my three lenders. My credit card debts are:

Bank 1: Dh3,500

Bank 2: Dh16,500

Bank 3: Dh5,500

Total: 25,500

I approached all three banks to help me pay off the outstanding credit card balances. I wanted them to be broken into instalments that I could pay off until April next year. Bank 2 agreed to this and I am paying them Dh1200 a month until the debt is cleared, but Bank 1 is refusing to help. If they had agreed to my request to block the interest and let me pay off Dh350 a month last year, I would have cleared the debt by now. Bank 3 is not a problem; I pay them Dh500 a month and that will be closed soon. On top of this I also have a car loan, for which I pay Dh1300 a month. For my expenses, my rent is now Dh3,500 as mentioned above, my transport costs are Dh200, groceries are Dh600 and I remit Dh1,000 to Dh1,300 to India every month. I am not using the cards at all and have been looking for another job, but have not found anything yet. My husband lost his job last year and I am also supporting my married daughter, for reasons I do not want to reveal. I borrowed the money because my income was not meeting my expenses. Please help me negotiate a settlement with bank 1. MA, Dubai

Debt panellist 1: Shaker Zainal, head of retail banking at CBI

Looking at your income of Dh5,000 against your monthly payments of Dh8,300, you appear to be running a deficit of Dh3,300 every month.

The first thing you can do is to combine all your debts (ie the three credit cards and auto loan) into a single, lower interest rate loan. For this, I suggest you approach the bank where your current salary is being transferred to. A salary transfer loan will require your end of service gratuity as a collateral, when you leave in April and your bank may be willing to help you out based on this. Please inform the bank on the length of service with your current employer or the approximate gratuity amount you are going to receive in April. This would help their decision on your loan application.

You should also reduce the amount remitted to India for the time being, until you are in control of your debts. If you or your husband have any savings here or in India, then try and utilise those funds to help clear your debts. Also, consider selling any assets you might have back home or in the UAE, to help with your immediate financing needs. As an example, you could sell your car, particularly if the sale price is likely to exceed the total outstanding car loan balance, which would result in some surplus cash for you.

Finally, it would be prudent to inform your employer about your debt situation, so that they can be supportive. For instance, you may consider asking for an advance salary payment from your employer, which you can use to make some payment to Bank 1 to reduce your outstanding credit card debt.

There are also some private debt management companies in the UAE, who engage with various banks to help their clients restructure /settle their debts and suspend any legal action until an agreement is made; however these services are subject to fees and charges.

Borrowing money to cover the daily expenses of living is never a good idea and invariably leads to the kind of financial difficulty you now find yourself in. You earn Dh 5,000 a month but your outgoings are currently in excess of this even without the debt repayments, which is not sustainable.

Your employer is now charging you for accommodation, which was previously part provided as of your package, so in real terms your monthly income has been reduced to Dh 1,500 - not what I would call a living wage. An employer is not permitted to change the terms of employment without the agreement of the employee, so did you agree this with them? While I understand employees may agree to a reduced salary to keep their job to avoid redundancy, but this situation seems very unfair. If you are unhappy with this, you can register a case with the Ministry of Human Resources and Emiratisation.

Remember, a bank is not obliged to accept anything less than the standard payments per the agreement signed with them. If a person defaults on a debt, the lender has the right to take action, which can have severe consequences. I am puzzled as to how you are even meeting any of the payments given your net income.

You do not want to be in a situation where a police case is registered so you will need to make changes. You need a higher income to service the debts you have already and while I see that you cannot reduce your UAE outgoings, is your daughter not able to support herself for a short period? Retaining another Dh1,000 a month might allow you to cover some debts repayments at least. Can any family members in India assist by supporting her for a while? Is you husband now able to find employment? Any additional income would improve your situation as you simply cannot continue in this manner.

Even on your previous salary of Dh5,000, the level of debt is too high so you will need to make changes to your life to have a chance of avoiding more difficulties.

Spending more than you earn has only one outcome - and that is debt. While it seems manageable at first, it does not take long before you are left with very limited or no options. We must catch ourselves before we reach that point. You must always have a percentage of your salary going away to build up an emergency fund.

"I don't earn enough," I hear you say. You can start by saving 3 or 5 per cent of your salary and gradually increase it as and when you can. But be systematic with it - as in plan your savings increments to happen every three or six months. When we don't plan and structure an increase in the amount we save, we never get round to actually doing it. However, make a small increment frequently and you will find you don't miss it. The key is to start and then make it a habit.

Redundancies can and do happen, family emergencies come up and so you must put yourself in a position that if it happens you can handle it and recover from it.

I often hear of residents supporting other family members and this is a great and kind act. Being able to help others, especially those we love, can give us a great feeling. This feeling is only genuine though when you are able to help without it being a heavy burden on yourself. By overcommitting yourself, you are building up a serious amount of debt. It's just like the advice you see on an airline's safety video: put your own oxygen mask on first before you help somebody else. Become conscious of your desire to help and your actual ability to do so. This is where you must learn to say 'no' or, 'not right now' or, 'I can only commit to this much'.

It's also time to really consider whether living in the UAE is a long-term option for you. First, look at options for cheaper rent. To have more than 50 per cent of your income go to rent is a massive strain. Next, explore other ways to cash. Do you have property or land you can tap into for funds? If so, now is the time to do this. Lastly focus on finding a higher paid job and support your husband in his job search. Use all your resources, time and efforts. Put yourself out there and prove with confidence how any company would be grateful they hired you because they know how much value you can add. Use your frustration and fears as a drive to earn the income you want.

The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to pf@thenational.ae